SIX/BME: a Spanish acquisition
It is the Swiss financial group that holds all the winning cards here
Swiss financial group SIX does not expect an inquisition. On Monday it announced an all-cash bid for Bolsas y Mercados Españoles valuing the Spanish stock exchange operator at €2.8bn (€34 a share), a healthy 35 per cent premium to Friday’s close. SIX will believe that BME shareholders find that tough to refuse.
Whatever confidence SIX has, French exchanges group Euronext has also confirmed it is in talks with BME. Its shares remained higher than SIX’s offer price throughout Monday.
Shareholders have already got a good price. At almost 15 times next year’s ebitda SIX’s bid puts BME at a record valuation. Indeed, that exceeds Euronext’s shares at 14 times. As it already has net debt nearly twice its ebitda, a higher counter bid could well include shares. BME shareholders would want to consider Euronext’s prospects carefully.
BME shareholders would want to throw themselves at any suitor. Until Monday, BME shares were worth just four-fifths of the level of five years ago. Annual revenues have shrunk by about €50m over the same period alongside dwindling cash equities. Compare that with Euronext, where shares have risen more than threefold as the exchange expanded and diversified into derivatives and data sales.
Yet Euronext’s sums might not quite work. It would bolt on BME to its existing collection of European exchanges, using the added scale to drive down costs. Justifying the premium by excising costs is tough. BME’s overheads last year stood at €78m. On a taxed and capitalised basis the premium offered by SIX requires annual reductions of nearly double that. Euronext is unlikely to get its shareholders to agree to a higher bid.
On the other hand, SIX has not mentioned any cost-cutting — one reason perhaps why the BME board likes the offer. It instead justifies the sticker price with assumed benefits from cross-border trading and greater diversification of revenues. As a private company, SIX faces minimal pressure from its shareholders and its only currency is cash. It is SIX that holds all the winning cards here. No question.